Geoff Lewis: Why I Put $200M into Rippling; Uncapped Notes; "Compound Startups" | 20VC #933

1. 0:00 – 0:40

   Intro

   1. HSHarry Stebbings0:00

      (beeping) Three, two, one, zero. You have now arrived at your destination. Jeff, this is such a joy. I always love our chats. There are any excuse for a chat with you, um, and I thought this would be the perfect one. Rippling is such an incredible company. Parker is amazing. Can't wait for the episode with him. But thank you so much for joining me today, Jeff.

   2. GLGeoff Lewis0:22

      Delighted to join you, Harry. Looks like you're all ready for vacation in that- in that cool hat.

   3. HSHarry Stebbings0:27

      Do you know what, my friend? I'm ready for the Amalfi Coast. Bring it on. But I wanna (laughs) start, um, with you and your relationship with Parker. Uh, I know that you met a long time before your founding of Bedrock. So take me back, and paint that picture and story. How did

2. 0:40 – 4:10

   How did you meet Parker Conrad

   1. HSHarry Stebbings0:40

      you first meet Parker, and what was that scene of the meeting?

   2. GLGeoff Lewis0:44

      Well, you know, it's a situation where I actually heard about Parker, I heard of him before I met him. Uh, one of my first pitches that I'd ever taken as a very young VC back in 2012, I was with a company called SigFig. And this was actually the first company that Parker co-founded. But Parker had been fired from SigFig right before I took the pitch, and so my pitch was with his co-founder. I believe his name was Michael. And I remember feeling like it was sort of this super smooth, super slick pitch. Um, felt like, uh, Michael seemed like a really good manager, like a good leader, but was missing what I kind of articulate as this sort of power plant energy, uh, that I really look for in entrepreneurs. Like, who's gonna just brute force this thing? Who's the entrepreneur who's gonna brute force this by sheer force of will into a huge company? And I didn't quite feel that that was there, so we passed on SigFig. Then a few months later, uh, one of my bosses at the firm I worked for, uh, referred a colleague and I, uh, an intro to Rippling. And I think they were, like, the hottest company in their Y Combinator batch at the time. This was also in 2012. And so we met him at our office, and this was way before I'd founded Bedrock with- with Eric, many years before. And, uh, it was a great... I mean, Parker was like, "Whoa, this guy is a power plant. This guy is gonna brute force a company into something one way or the other." But we felt, I think, at the time, I don't fully remember why we passed, but I think we felt at the time that it was sort of because it was the hottest company in the batch and because it was sort of being sent to every single VC in Silicon Valley. There weren't that many back then. There are like 100X more now, but still a lot of competition, that the seed round be too competitive. And- and the firm I worked for ultimately ended up investing in Zenefits later on, so I think I maybe misspoke. This was the Zenefits seed round back in 2012. But, you know, over the years, I sort of like... As Zenefits started to implode and the drama started to really kick in, I started reaching out to Parker. And I was sort of in the midst of thinking about starting, uh, Bedrock. This was sort of 2017. And we, you know, we had a dialogue. We had a few emails. We had a few, uh, messages back and forth. And I was sort of just rooting for him, because I'd- I'd been struck by his energy in that Zenefits seed pitch, I'd obviously been struck by the arc of Zenefits, and I'd been struck by my feeling that the- there- there was a missing element on that SigFig founding team, and Parker felt like that missing piece to me. And so I wanted to build a rapport with him. So in 2018, we finally closed our first fund on Bedrock. You know, it took us longer than I would've liked, but we- we got it done. We typically get things done when we say we're gonna do them. And, uh, our first email was like, to Parker, like, "We- we- we've got- we've gotta get involved in Rippling." And he'd just closed his seed round, unfortunately. We missed it. We missed it by a few months. But, you know, like Parker, uh, we- we consider ourselves quite relentless. So yeah, it dates back to 2012. It's been a decade of interactions.

   3. HSHarry Stebbings4:02

      So I wanna start with Parker, because obviously with Bedrock, you- you focus a lot of your messing around narrative violations. And in the memo you put Parker

3. 4:10 – 6:41

   Why is Parker Conrad a narrative violation?

   1. HSHarry Stebbings4:10

      was narrative violation number one. When you look at, you know, his background and, uh, the prestige that he comes from, serial co-founder, serial founder, uh, why is Parker a narrative violation in your mind?

   2. GLGeoff Lewis4:23

      Well, many reasons. I'd say the first reason is it's always how does an entrepreneur view themselves? And one of the things Parker has consistently said to us is, "I am the ultimate narrative (laughs) violation." So he self-identifies, and I think he would- he would say this, he said it to us, he self-identifies as a narrative violation, so who am I to say he's not if that's how he feels about himself? You know, I've sort of ab- abstracted a little bit, and I always like to look back, uh, to business history. I'm a huge student of business history and the history of entrepreneurship. And if you think about sort of the greatest entrepreneurs, we can sort of go from everyone from, like, John D. Rockefeller, who of course founded Standard Oil in the early 1900s. You know, we could fast-forward to the '80s and '90s. You know, Steve Jobs was ousted from Apple, and then he was, you know, he returned to save the company. The- I think the greatest entrepreneurs in history, and this is a sort of déclassé thing to say, it's not really a appropriate thing to say, but I'm gonna say it anyways. I think the greatest entrepreneurs in history, it's this combination of a life's work surface area for the company, a life's work vision that they are truly gonna dedicate their life to, with an extra motivator. And that extra motivator is vengeance. John D. Rockefeller was an extraordinarily vengeful person. Jobs, when he returned to Apple, a lot of vengeance there. And I think if you look in business history...... including the most valuable technology companies today. Google is maybe the exception, they don't seem very vengeful over there but, the most valuable companies today. There's a lot of vengeance if you dig in to the- what happened under the hood along the way to those entrepreneurs. So, when you find a transcendent life's work entrepreneur with a company where there is a huge surface area they can capture, where they're not going to stop because they have this extra motivator, this extra ingredient of, quite frankly, being wronged in some way by the world or by someone else, you in- you ought to invest. And to me, that's a narrative violation.

4. 6:41 – 10:04

   Do you have vengeance?

   1. GLGeoff Lewis6:41

   2. HSHarry Stebbings6:41

      So, I have this vengeance myself 'cause I- my grandparents lost everything when I was young and, you know, as a family, you see your grandparents and your family lose everything and it, it really is destabilizing to your core. Um, do you have vengeance, Jeff?

   3. GLGeoff Lewis6:56

      You know, I try to anchor myself to ancient things, um, ancient beliefs about the world, and they've helped me to really overcome feelings of vengeance that I had earlier on in my, in my life, in my career. At this point, quite honestly, I feel very free. I don't really have vengeance at all, but because I've had it at junctures in the past, I know it when I see it, and I respect its power when I see it and I want to back the truck up into entrepreneurs who have the goods, who have a huge life's work mission, who clearly can execute, who clearly are A+ and have that extra motivator. Because I know how... I know, I know the degree to which it can push someone. So like, it's so irrational to start something huge from scratch. Like what, what we've done, Harry, starting these new venture capital firms where you've got these extraordinarily powerful incumbents that we're competing against and trying to collaborate with wherever we can, it's just completely insane to even try and start these things. You have to have something else beyond the life's work motivator. There has to be something a little bit off powering you to keep going, and Parker has that in spades more than any entrepreneur I've backed. He's got it.

   4. HSHarry Stebbings8:20

      I mean, I, I couldn't agree more and I love that in terms of vengeance being that kind of crucial actual source. (laughs) I do wanna touch on the second narrative violation.

   5. GLGeoff Lewis8:27

      Ideally, you overcome it at a certain point. So like, I'm glad I've overcome it. Um, ideally, you sort of overcome it ultimately, but-

   6. HSHarry Stebbings8:34

      Do you not, do you not worry that with overcoming it, you become mediocre?

   7. GLGeoff Lewis8:39

      Well, I think you can find other motivators. And so I'd say in my case, what's... yeah, no. (laughs) This should be about Rippling and Parker, not a psycho- psychoanalysis of you and I, Harry Stebbings. But-

   8. HSHarry Stebbings8:52

      I'm enjoying this. Go back.

   9. GLGeoff Lewis8:53

      (laughs) I think, I think in, I think in my case, the thing that supplanted it as a motivator is sort of the journey of building. You know, I'd never managed a, a team and built a team and mentored other people to be investors. And over the last few years with Bedrock, as we've, as we really scaled things and sort of built out this incredible portfolio, I've really grown a lot and feel motivated by the team, growing other people, helping them figure out their life's work and express their investing style in their own unique ways. That's become my North Star motivator. Early on, yeah, there was... I wouldn't frame it as vengeance per se, but certainly a chip off my shoulder, 100%. Hopefully I don't lose my edge. We'll see. I might. We'll see.

   10. HSHarry Stebbings9:45

       (laughs)

   11. GLGeoff Lewis9:45

       I think you've got a lot more vengeance than me though, so you're gonna be fine for the long term.

   12. HSHarry Stebbings9:49

       I do, but that's why I pay my therapist so much more than you do, so, uh, don't worry about it. (laughs)

   13. GLGeoff Lewis9:53

       (laughs)

   14. HSHarry Stebbings9:54

       Um, I, I want to move to the second narrative violation though with Rippling, which is, um, basically how they build the company itself. It's been described before as a compound startup.

5. 10:04 – 12:07

   What does a “compound startup” mean?

   1. HSHarry Stebbings10:04

      Um, I want to touch on this. How did you first see this compound startup build with Rippling, and what does that mean, really?

   2. GLGeoff Lewis10:13

      Well, look, I think it basically means that they are trying to become truly the employer of record for n- not just SMBs, not just mid-market, but upmarket as well. And in building an employer of record, that means like multiple, multiple products, where you basically have pseudo-decentralized teams internally with leaders building them, and then ideally, there'll be... there's this flywheel effect over time. And the way that we've seen that really come to the fore over the past few quarters with Rippling is the upgrade rate is astronomical. So I mean, whenever people renew, when customers renew, they're upgrading. One of the things that Rippling does that I think is super cool is we get an auto email, uh, the major investors, there's a few of us, ourselves, Sequoia, Kleiner Perkins, Founders Fund, get an auto email on, um, every time they close a deal. And just folks are upgrading like crazy because they built this suite of so many different products. There are so many things for people to upgrade to, so much to cross-sell, and the value proposition is uniquely suited, I think, to our times, which was part of why we decided to, you know, quadruple into the company by co-leading that Series D round earlier this year. It basically allows businesses to flatten the G&A curve. It allows them to spend a lot less, they can accomplish a lot more faster without adding headcount. So I think that's the specific way in which compounds startup for Rippling is both manifesting and why it's gonna be extremely valuable to end customers over the years to come in a context where folks are trying to cut costs while also improving efficacy of administration and HR at large.

6. 12:07 – 16:15

   What are strengths and weaknesses of Rippling?

   1. HSHarry Stebbings12:07

      So, I- I have to admit, I did speak to a mutual friend of ours, Peter at SCS, before the show, and he asked specifically, when you think about kind of upgrade rates and business model, for you in particular, what were you most excited by when it came to Rippling's business model? And then on the flip side, what areas did you think, or do you think, uh, will be challenging and need improving?

   2. GLGeoff Lewis12:28

      Well, look. I think payroll itself, the jury's out on how wildly profitable payroll itself can be. So obviously, the core for Rippling i- originally was payroll. Now they've expanded way beyond that, and very savvily, have used that as a wedge to really become workforce management to own the employee graph. That's the vision that's so compelling for me with Rippling. Now, obviously, there are payroll companies like ADP that are extraordinarily valuable legacy companies that have never innovated, but I'm skeptical of payroll as a huge moneymaker. Now we have other bets, uh, or I hate to say bets. Let me take... I reneged the word bets. We have other investments that we're bullish on in payroll that take a different approach, where they're not actually monetizing sort of the payroll offering. They have sort of a different approach to monetizing. But I think that's part I'm skeptical of. But Rippling's already moved well beyon- beyond that. What I'm most excited about with Rippling, actually, I didn't learn, we didn't learn at BedRock until March of 2022. So basically, we had been investors since before the series B, right? After the series A, we invested in 2019. In March of 2022, Parker and the company articulated a very specific and detailed product roadmap around how they can really become, through their employee graph, over time, I don't think he would s- phrase it this way, but I'm going to, the AdWords for SaaS. Like basically, this can become the way that business software is sold because of all of the employee interactions, uh, that Rippling owns. So the more surface area they grab on the customer side, the more they actually become positioned to be the way that SaaS becomes distributed. That's part one. Part two, I actually think Rippling can displace, um, some pretty big companies. I mean, I'd say when we first invested in 2019, we thought, oh, you know, I sort of thought, "Okay, Gusto, you know, seems like a really good company, but I, I don't really like that the people don't wear their shoes in their office." That sort of bothered me with Gusto. Maybe it's pronounced Gusto. I'm always bad at pronunciations. But I don't like companies where the people don't wear their shoes in the office. So, (laughs) so I'm like, it can probably displace G- Gusto. Then it's like, okay, wait, it can probably be like Workday 2.0. That's like a, you know, let's say end state, 35 to $55 billion outcome. And now I'm like, "Wait, why does Deel even need to exist?" Like, why isn't Rippling just Deel? Why do some of these European payroll, uh, and HR workforce management companies, not knocking on Europe, but why do you need a Rippling for Europe? There's no Airbnb for Europe. Uh, there's no Google for Europe. Why do you need a Rippling for Europe? Why do you need a Rippling for the rest of the world? Why can't that be Rippling? I think it can be.

   3. HSHarry Stebbings15:29

      I, I, I get you and I agree. The infrastructure though that you need to build out a Rippling for Europe upon a per country basis, given Europe's different regulatory provisions in each country, mean that-

   4. GLGeoff Lewis15:39

      100%. Super hard, and Personio's done an amazing job of that. Can, can, can be replicated. Can be replicated.

   5. HSHarry Stebbings15:47

      To- totally. The question is like, narrow the focus, increase the quality, to Slootman's quote, and actually there's so much more that Rippling can do in the US in terms of, you know, market dominance. It's a, it's an interesting strategic question of, you know, do you go for market dominance in the US or market entry and expansion in Europe?

   6. GLGeoff Lewis16:07

      Yeah. You should ask Parker that question.

   7. HSHarry Stebbings16:10

      (laughs) I will do, um, and get a ton of hate from Europe. Yeah, totally. It's a

7. 16:15 – 20:08

   Do you engage in outcome scenario planning?

   1. HSHarry Stebbings16:15

      wise, wi- wise thought. Y- y- when you said about the AdWords for SaaS, Jeff, the honest thing that I thought was, how big a, how big a company is that? Is that a $100 billion company? Is that a $50 billion company? And I think a lot now about outcome scenario planning, because I think it's so dangerous when you think, "Well, how big a company is that?" 'Cause you always underestimate the size of your winners. If I told you when you met Parker for the first time in 2018 with Rippling, that it would be the size it is now, you'd probably go, "Wow, I didn't expect it to be that big." A- do you engage in outcome scenario planning given the realization that you always underestimate the size of your winners?

   2. GLGeoff Lewis16:49

      It's a great question. I'm gonna answer it in a roundabout way by starting with, um, for us the question always, w- with any investment, and then I'm gonna talk about our different investments in Rippling that we've made over the years. First question always, is there a 10X from here? Can we gain conviction through a bust analysis that if things go right, there is a 10X from here? So, that's our work. We don't try to project beyond that. But we do always ask the question, is there a 10X from here? And we do a lot of work, and we did a lot of work on, you know, quite frankly, all of our investments in Rippling on the 10X from here. So we believe in a 10X from here. If they unlock global, um, you know, g- global, uh, employee of record, if they can do AdWords for SaaS, you have this incredible flywheel with the core business that actually enables you to fund these things, which brings me to my second point, which I think is almost more important than outcome planning. How big of a preferred stack do you need to get to that outcome? And one of the questions, how much preferred equity do you have to sell to the evil venture capitalists, uh, in order to get to, (laughs) in order to get to that massive 10X outcome?One of the things I love about Rippling is that so many of these massive outcome companies, so if you think about the deep tech, frontier tech stuff, where the outcomes can be just astronomical, or you think about sort of, you know, something like a... A lo- lot of, lot of things where you actually need to raise billions of dollars in preferred capital from venture capitalists to get to that big outcome, which means that actually there is a lot of risk of capital loss.

   3. HSHarry Stebbings18:41

      Yeah.

   4. GLGeoff Lewis18:41

      Now, a common truism amongst venture capitalists that I disagree with is, you can, you can only lose 1X your money, so just focus on the upside. We don't like losing money at BedRock. And we like to find companies where the preferred stack will grow linearly or sublinearly with revenue. And Rippling is that in spades. I've never found a company where I'm more convinced because of their, quote unquote, I don't love the buzzword compound startup. Parker likes it, so we can use it. He's the boss. But because of their approach to product building and go to market, I believe the preferred stack grows either linearly or sublinearly versus revenue over time, versus hyperlinearly. Now, they're already at, you know, nine figures of ARR are growing extremely fast. They grew almost 3X over the past 12, 12 months. So they're still... You know, we're gonna have to see if my thesis, our BedRock thesis is proven out. But today, the preferred stack is very small for the scale of the business and extremely small for the scale of the ambition. And so when you can find an opportunity where you have very high conviction you're not going to lose money, you can plow a lot of capital into it, and you also believe in a 10X story over many, many, many years, that's very rare

8. 20:08 – 22:08

   What have you learned from losing money?

   1. GLGeoff Lewis20:08

      in my experience.

   2. HSHarry Stebbings20:09

      You spoke about losing money there, and it should never be easy or, uh... It should always hurt. Um, I lost money for the first time recently, and I learned one thing very importantly, which is that sometimes there are cases where the founder can be the best in the world almost, but actually there are things societally, macro, politically, which can fuck a company beyond belief, beyond even the best founder's ability to keep the company alive. That was my lesson from losing money in this case. If you think back to a time when you lost money, it could have been the first time, um, what was your takeaway from that?

   3. GLGeoff Lewis20:47

      Well, I haven't lost much, to be honest with you. I think I've only... We at BedRock have only lost a few million dollars. You know, we've invested hundreds of millions of dollars over almost five years at this point. I think our loss ratio is less than 50 basis points, so we, we've lost almost no money. Um, you know, I've lost money by holding onto positions that IPO and when I should have sold them, so I've lost money in some of those scenarios. But, uh, look, I mean you can't control everything. We, we have a company in our portfolio now that they were hit extremely hard by the macro. They had some executional missteps. We have small dollars in, so we, because of our capital concentration approach, which Rippling really epitomized, I mean, we sized up into Rippling over several junctures over several years. This company I'm referring to that has trouble, like, we don't have much money in it. We only have a few million bucks in it. So if we lose that, it's fine. I think they're gonna figure something out. I'm optimistic. But yeah, there are things you can't control, but what you can control is the micro and the underwriting of the micro opportunity, and it's pretty hard to find an asset of this caliber on the planet.

9. 22:08 – 25:20

   Uncapped notes

   1. GLGeoff Lewis22:08

   2. HSHarry Stebbings22:08

      You mentioned sizing up over time into Rippling. You wrote the original, uh, check, well, your first check into it in an uncapped note. Now, I always have this rule of no uncapped notes, and I, I think that you have, in the past, shared my perspective there, but you did it here. Help me out in terms of the internal discussions you had around committing to the uncapped note, why you decided to break the rule, and why generally you hate uncapped notes.

   3. GLGeoff Lewis22:34

      For sure. So look, we tried to lead the Series A, A in 2019, and the postmortem from that was, uh, they're just... Every round in Rippling is gonna just be priced to absolute perfection. They were so good at managing that fundraising process. The memo was just absolutely flawless. Like, they circulated a memo that's better than any, any VC on the planet could write on, like, why this is an obvious investment, you've gotta do it. A few hours later, they follow up. There was a clerical error in the memo, and they follow up to correct the clerical error. I think that might have been on purpose. I think they might have put the clerical error in the memo so that they could follow up a few hours later to show their attention to detail (laughs) in the correction of the clerical error as a follow-up subsequent email. Like, I think these are masters. This team, Parker and his team at Rippling, are masters of raising capital. They are, they have it down to an art form. And so, you know, look, we were outbid on the Series A by about 100 million. We were off by about 100 million on valuation. And my postmortem and our BedRock postmortem from that was every round in normal markets will be priced to absolute perfection. And so counterintuitively, the way to actually pay a lower price is to "invest" (laughs) . And, and I use invest in air quotes, but it's to deploy capital, 'cause uncapped notes aren't actually investing. That's why I hate them. Investing is, you know, you should know the price you're paying. That's what an investment is. It's not an investment if you don't know what the price you're paying is for the security. So (laughs) , th- that's why we've never done them since Rippling. We've never done them before Rippling. We would never do them again unless a...... clone of this scenario surfaces some years down the road, which I doubt it will. But we- because they're so good at fundraising, we counterintuitively thought it would be cheaper to get in on an uncapped note than to compete to lead the next round, because the business, we felt, was gonna clearly work following the Series A. And we actually took a lesson away from this, which is, with Rippling, and we've extrap- extrapolated this to every investment, by the time a company's in a formal financing process, it's kinda dead to us. Like, we, we still love it. We still love the entrepreneurs, but once they've circulated a memo to 12 VC firms, we're not engaging. And both our Series B that we tried to do at Rippling, and then we're our own worst enemies and screwed up, right, when COVID hit, and the Series D that we collabed with Kleiner Perkins, those are rounds that we catalyzed, because that's how we operate now. We just- we catalyze rounds. We don't compete.

   4. HSHarry Stebbings25:19

      Listen, you,

10. 25:20 – 29:11

    How did you miss out on Series B?

    1. HSHarry Stebbings25:20

       you always come to my show for an honest conversation. Talk to me about the screw-up at the Series B. I read this and I kind of was wincing in pain, but also, you know, uh, empathetic to my dear friend Jeff, feeling sorry for you. (laughs) Um, tell, tell me in this one, what happened and what was the fuckup there, man?

    2. GLGeoff Lewis25:37

       Oh, man. Look, if I had to sum it up, it would be analysis paralysis. I wanna take you back to- I wanna take you back to that moment in time, and I'd encourage folks to go to bedrockcap.com/rippling, where we write about this ad nauseam. But, you know, it was sort of February 2020, and we were convinced there was gonna be this COVID shock, everything was gonna grind to a halt, and then there would be a rebound at some point. So we project- we got the projection right. We were like, "What? Do we have agency? What can we at Bedrock do to take advantage of this as investors?" And our, our- we concluded we should invest in Rippling because they're not- we're not gonna have 20 VC firms competing to lead a preemptive Series B at this moment in time. We called Parker up. He's like, "Yeah, I'll engage." We dropped everything for two weeks, literally while the world shut down. All we were doing was working on Rippling, myself, Spencer, Eric. All we were doing was working on Rippling, interviewing all the executives. Tons of diligence. We agreed on a valuation with Parker. He's like, "Send me the term sheet. I'm ready to sign." And we were like, "Wait." Like, all of their business at the time was SMBs. Now, since then, they've extend- expanded service area phenomenally into mid-market. They're starting to crack very early innings, but upmarket. Back then, it was like all SMBs. We're talking like DJs, doctors' offices, barbers (laughs) , hair salons (laughs) . At some startups, we're like, "Okay, like wait a second. If everything's shut down." And then, and then the government announced like the lockdown. We're like, "Okay, if everything's shut down for like a year, and they can't expand beyond SMB, we might be overpaying by like a factor of, you know, more than we thought." We knew we were overpaying. But we thought about might be overpaying by a factor more than we thought. And ultimately, we concluded, and this is an internal, you know, inside baseball on VC firms, we had a lot of dry powder in that fund. That was many funds ago for us, several funds. So that was Bedrock Fund Two. We were just starting to invest out of our second fund, and we had lots of calls with our LPs. They were calling us being like, "What's your take on the macro?" Everyone was freaking out. So all the LPs are freaking out about the macro. And we're like, "Actually there's a risk maybe if some LPs would default if we call like 10% of the fund right when COVID hits." And so it was a combination of the SMB thing, the like LP fear, and the market at that moment in time. We talked ourselves out of it. But we did try to do it at a lower price. So we concluded, "Okay, we should try to renegotiate with Parker." We offered X. "Let's try and get it at Y." He said, "No, thanks." And, uh, we were, rightly so, kicked to the curb. But we managed to, you know, maintain and build the relationship. And after that screw-up, we opportunistically bought secondary. Uh, predominantly preferred secondary because part of our thesis is this is going to be a relatively small preferred stack for the scale of the company that they're building, uh, at several junctures. And that's what led us actually to like really dig in with Parker and the team and catalyze the Series D with KP, because we were buying up secondary over several years. And then when the market started to crash, we had a very unique view on why this was the deal to do. And we were determined

11. 29:11 – 33:15

    What was the unique view to invest in Series D?

    1. GLGeoff Lewis29:11

       not to get it wrong again.

    2. HSHarry Stebbings29:13

       Tell me, what, what was the unique view? 'Cause as you said, the market was crashing. I think, you know, in the memo it says itself, you know, mid-market tech stocks were down 60%. It did not look rosy. What was the unique view that gave you the conviction to write such a large check and really double down at a worrying time?

    3. GLGeoff Lewis29:30

       Well, look, the unique view was multifold. I'll start with our macro view, which I think was actually pretty unique, and then I'll talk about how it led us to Rippling specifically. So, we started to project out. We had a mental model we were building in, say, November, December of '21, January, February of '22. There's gonna be a huge crash. Things are insane. People are gonna run away from growth. That's part one. So we felt like everyone's gonna run away from growth. What's gonna happen when everyone runs away from private growth? We felt like they were gonna run to early stage and pricing at seed and Series A, where we typically like to enter a company, and we entered Rippling shortly after their Series A. That's when we typically like to enter, and we did that in- with Rippling a little bit after their Series A, so we didn't get it r- quite on the nose. But everyone's gonna r- run there, and prices will s- basically stay where they're at.But a lot of those companies will end up not being able to raise follow-on financing because actually, there's going to be a 12 to 24-month period of repricing in the private markets. And nobody, including us at BedRock, nobody knows where the pricing's ultimately gonna land. We still don't know, Harry. I don't freaking know what the pricing's gonna be two years from now. Anyone who says they know is lying. Nobody knows where it's gonna land. So we felt like everyone's gonna anchor earlier stage because of the perception of higher upside there. And in fact, the question that nobody was asking was, where can you actually invest money where you're sure you're not gonna lose it in this world where the private market pricing is gonna be all over the place? But beyond that, where can you be sure you're not gonna lose it, have solid conviction in a venture multiple with a path to a 10X? And when you're talking about a mid-sized firm like BedRock, and we were thinking about deploying, we wanted to make one big investment. We were like, "We need to do a growth-stage investment," and we wanted table stakes, in a worst-case scenario, we get our money back, with ultra-high conviction and a 10X story. So that led us to, and this was like February of 2022, what are the absolute best private growth-stage assets on the planet? And we had Spencer, myself, and Eric scouring literally the globe, trying to dig in to all the private growth-stage assets, and we actually decided, it was already in our portfolio, it was Rippling, for a bunch of the reasons I've already articulated, a bunch of the reasons that are in our memo, we're like, "We think this is the single best private growth-stage asset, full stop." We love the end market. The founder literally is not going to stop. In order for him to self-actualize, he needs to build a abs- one of the largest companies on the planet. They have the team. They have the momentum. They have the product suite. They have the go-to-market. And we decided that in an environment where things are gonna be extraordinarily hard for entrepreneurs, and where all of the energy was gonna shift earlier-stage to the extent VC is doing anything at all, we wanted to back our truck up into the most resilient founder we knew running the best growth-stage company we could find. Uh, and, and that was Rippling. Um, and that was Rippling, and that was, that was sort of the qualitative overlay of, of what got us there.

    4. HSHarry Stebbings32:47

       I have to ask you, you mentioned the uncertainty that we see at growth today in terms of the pricing and where it lands. I totally agree. No one has a fucking clue.

    5. GLGeoff Lewis32:53

       At early stage, man, I think it's across the board. No one knows where these prices are gonna land two years from now.

    6. HSHarry Stebbings32:59

       No, but like w- I mean, the, the kind of ridiculous thing that you see is people who say pricing at early-stage has changed. I don't think pricing has actually changed for the best companies at all at early-stage.

    7. GLGeoff Lewis33:07

       Right.

    8. HSHarry Stebbings33:07

       There's just been a migration of capital from late to early, and so it's kind of stabilized where it was. Nothing's changed. Growth has completely died.

12. 33:15 – 35:26

    How do you engage with Growth?

    1. HSHarry Stebbings33:15

       Um, so my question to you is, how do you think about engaging at growth? Advise me here, (laughs) Jeff. How do you think about advising in, like investing in companies at growth today, given the extreme volatility and uncertainty of where growth pricing will actually land, and actually the range being much bigger? You know, 200 versus 500 is much bigger than 20 versus 15 at the early-stage where it doesn't really matter.

    2. GLGeoff Lewis33:38

       100%. Look, I mean, I think growth was dead. It seems to be coming back. I mean, Personia just raised 8.5 billion. I saw another company that just raised at a really high valuation. I think growth's starting to come back. But yeah, your point is well-taken. Look, I mean, ultimately, this is something that we did once because we have a unique belief. A, it was capital concentration, so like this was out of reserves from Fund One, Two, and Three. Plus, we had a unique BedRock idiosyncratic thing. We owned a lot of Bitcoin and Ethereum in several of our funds, and we're like, "What's the next thing to crash?" So in like January, we're like, "Okay, growth's gonna crash. Pr- public markets have crashed or are crashing. Growth's gonna crash. What's the next thing to crash?" We're like, "It's gonna be crypto." We're like, "We have to get (laughs) out of Bitcoin and Ethereum." So we traded out of Bitcoin and Ethereum via our second fund, and for it a m- right before the crash for a great multiple, and recycled those proceeds to fund our Rippling investment. There's all these idiosyncratic firm-specific considerations that go into it, and then ultimately, we're like, "What do we hang our hat on?" We, we think the quantitative analysis, the analysis on the TAM, the product diligence, all that's table stakes for making a growth investment. Like we can do that. We're not better or worse than any other, you know, reasonably decent firm on the planet. What we hang our hat on is, can we underwrite a life's work entrepreneur who's not going to fucking stop no matter what happens in the world, better than anyone? Yeah, I think we can underwrite that. Can we underwrite a survivor better than anyone? Yeah, I think we're the best on the planet at that. And that's who we wanted to bap. So I don't think you're gonna find that 'cause I think Rippling's the

13. 35:26 – 37:19

    When to return money to LPs

    1. GLGeoff Lewis35:26

       singular one. (laughs)

    2. HSHarry Stebbings35:28

       (laughs) I'm fascinated that you said about kind of the reserves that you got back from the Bitcoin and Ethereum sales. You had a choice to distribute back to your LPs there, and actually in a time when, you know, capital supply was crucial, you, you obviously chose reserves management, which, you know, in the long term is the best thing for the fund, especially when you deployed into Rippling. (laughs) But in the short term, you miss out on making LPs happy and sending them back cash, which can help in terms of future fundraisers. I, I have this question now quite often where you, you know, you have the chance to distribute back versus redeploy. How did you think about that then? I'm just interested to learn from you.

    3. GLGeoff Lewis36:03

       Well, we did it on Fund One, so we returned a 10-plus X life-to-date multiple on our Bitcoin and Ethereum investments on Fund One to our LPs in cash. Nobody even emailed us to thank us. Didn't get a single thank-you email from our Fund One LPs. "Wow, this is a 2018 vintage fund. You are a top 5% venture fund based on the Cambridge Associates data." And no one gave a shit that we returned-... that money sooner than the fund's life. So I'm like, "You know what? If they don't care, we're gonna do what's best for maximizing the multiple of the fund," because ultimately that's where our interests are aligned with our LPs. We all wanna maximize the multiple over many, many years. We're recycling, so we're like, "We're not making that mistake again. We're gonna recycle these proceeds, and we're trading out of a frenzied, overvalued asset class that ultimately we think is gonna bounce back over many years." Bitcoin and Ethereum will bounce back. And we're gonna put it into a back-to-basics compound startup company, and we're glad we did.

    4. HSHarry Stebbings37:08

       Wow, that is fascinating. Gosh. Um, (laughs) that's good for me to know. Um, uh, t- tell me, in terms of the, the market environment that we spoke about there, the one question I did have applied to the company is...

14. 37:19 – 39:24

    How does the current market affect Rippling’s customer base?

    1. HSHarry Stebbings37:19

       And actually speaking about kind of the upgrade rate that you spoke about earlier, given the macro, given the layoffs, given current kind of internal sentiment within companies today, a- are you concer- like how does the new market environment affect Rippling's customer base in your mind? And is that a concern?

    2. GLGeoff Lewis37:37

       I think it's great for Rippling's cus- I think it's great for Rippling. I mean, it's gonna be challenging for Rippling's customer base. The reason that it's good for Rippling is because they actually allow their clients to do more with less. They're able to show their clients tangible time and headcount savings. So it is a more for less story. Rippling customers don't need to hire dedicated payroll administrators until they're over a thousand employees. Rippling customers, you can onboard a new e- onboard a new employee in less than five minutes. You can offboard a new employee in less than five minutes. Uh, you can convert a contractor or part-time employee into a full-time employee in five minutes or less. It removes so much administrative work, it is a cost savings tool, which is why we're seeing the upgrade ma- the magnitude of the upgrade volume that I'm at least anecdotally seeing through these emails of whenever a customer upgrades, it's unbelievable. So I think it's a plus for Rippling. If you save a company money when they're trying to save money by reducing administrative work, that benefits Rippling. Now, the jury ultimately is out. I mean, if, if we enter a true recession, and companies are laying off hordes of workers, that's obviously not good for any enterprise SaaS company. It's not gonna be great for Rippling.

    3. HSHarry Stebbings39:05

       Yeah.

    4. GLGeoff Lewis39:05

       Um, but ultimately I believe that like... Yeah, I, I d- I don't believe... I don't think you can be a venture capitalist and believe that it's like we're entering Great Depression 2.0, and companies aren't gonna need workforce management. Like that to me just seems insane, that we're gonna live in a world where you don't need a workforce

15. 39:24 – 40:30

    Do VCs need to be optimistic?

    1. GLGeoff Lewis39:24

       management tool. I don't-

    2. HSHarry Stebbings39:25

       (laughs)

    3. GLGeoff Lewis39:25

       ... believe that's the future.

    4. HSHarry Stebbings39:27

       Do you agree that as a VC you have to be inherently optimistic? Optimists, like, fundamentally make money in venture.

    5. GLGeoff Lewis39:35

       Well, that's definitely been true historically. Uh, and then the question is (laughs) , um, the question is, uh, is it gonna be true in the future? Um, look, I think, yeah, you n- I thi- I think you need to balance both, Harry, to be honest with you. I mean, I'm not like blindly optimistic. We at Bedrock certainly are not blindly optimistic. We have a healthy dose of pessimism on lots of things and brutally intensive debates internally. But ultimately, I think you have to believe in the ability of select life's work entrepreneurs to transcend, to build extraordinary teams that build extraordinary companies. You have to be optimistic that people have agency and can do great things. You can be pessimistic about a lot of other things.

    6. HSHarry Stebbings40:25

       Do you know what, Jeff? The joy of kind of doing this for as long as I have and being old now is that I'm actually

16. 40:30 – 41:59

    How will you advise Rippling?

    1. HSHarry Stebbings40:30

       just brutally honest. Uh, (laughs) and, uh, the nice thing about investing at growth is the companies don't need you. Um, you know, often early stage, you really have to be a lot more hands-on, and you really have to get involved in a lot more areas, um, even with great founders. Um, a- a- when it comes to series D at Rippling, I mean this respectfully, is there much for you to do as an investor, given the quality of the management team and the stage of the company? And how does, like, your input change given that insertion point?

    2. GLGeoff Lewis41:00

       Very little for me to do. It's an absolute dream.

    3. HSHarry Stebbings41:04

       (laughs) Yeah.

    4. GLGeoff Lewis41:04

       And one of the things I love about Parker is he doesn't want help from VCs, full stop. I think he has a really special relationship, uh, certainly with, uh, his lead for the series A who co-led the series D with us, um, Mahmood from KP. You know, when someone takes a bet on you and believes in you and leads the series A, that's a special relationship. So I'm sure that that's a great, super helpful relationship for Parker, and Mahmood's phenomenal. I think he has a special relationship with Mike from Sequoia. They went to college together. He doesn't need my help. If he wants my help, I'll give it to him. I've given it to him on a few things in the past. Uh, I don't really bug him, and it's a dream. It's a dream for a VC to be able to deploy this much capital in a company where you believe there's no way you're gonna lose money, and there's a path to 10X over 10 years that you s- you strongly believe in as a firm

17. 41:59 – 42:54

    How much of Bedrock’s capital is allocated to Rippling?

    1. GLGeoff Lewis41:59

       and you don't have to really do very much. That is a dream equation.

    2. HSHarry Stebbings42:03

       You put 125 in. What percent of your fund is that? That's 15%?

    3. GLGeoff Lewis42:07

       Well, we did it through three funds. We had Be- actually four funds. We did it through Bedrock, our first three funds, Bedrock 1, 2, and 3. It's around 20% of those first three funds now all in as Rippling across all of our investments. And then we syndicated a tiny, like, sliver, like, like, you know, not hardly any of the round, uh, via an SPV to a few of our LPs who wanted exposure.

    4. HSHarry Stebbings42:30

       Do you, uh, uh, Brian Singman, obviously your, your former colleague from Founders Fund, said the biggest enemy of venture returns is capital concentration limits. Um, do you agree with him?

    5. GLGeoff Lewis42:39

       Well, we just did it, so we have 20% of one, two, and f-... Bedrock 1, 2, and 3 are in Rippling. We have a ton of Bedrock in Flock Safety. We have a ton of Bedrock in Vercel. So we've concentrated capital in Rippling, Vercel, and Flock Safety to an extreme

18. 42:54 – 44:30

    Rippling’s 10x case

    1. GLGeoff Lewis42:54

       degree. So yes, we agree with him.

    2. HSHarry Stebbings42:56

       I, I wanna finish on Rippling's 10X case. When we think about Rippling being a $100 billion company... A- we're gonna end on the positive 'cause, uh, I'm gonna pretend like I'm an optimist just for today.

    3. GLGeoff Lewis43:07

       (laughs)

    4. HSHarry Stebbings43:07

       Um, but, uh, when we think about, like, that 10X, what are the one, two biggest barriers you think there will be to Rippling's 10X outcome? Before we talk about the positives.

    5. GLGeoff Lewis43:18

       I lo- look, ultimately, every company is its own worst enemy. So when you're this am- when you're this ambitious, um, and you're trying to do this much, uh, and you're scaling this quickly, there are lots of ways things can unravel internally. So that is the risk, especially given the compound startup approach to having the different teams internally. This is why I think the brilliance of Parker is hiring his college friend, Matt McInnis, who's a proven founder himself, who's phenomenal as COO. Like, Parker ne- identified he needed that. Looking at the rest of the executive team, the caliber of their CFO, the caliber of others on that executive team, their new head of engineering, I mean, it is a truly world-class executive team for a early growth stage private company, albe- albeit a highly valued one. So I'm optimistic that we're gonna be able to navigate the internal scaling challenges, but that is always the challenge with these things. I don't believe any other company... I'm sorry, but I'm just gonna say it. There's no other company that's gonna be able to out-execute this founder in their market. Full s- it's just not, it's not possible.

19. 44:30 – 46:03

    A team of founders at Rippling

    1. GLGeoff Lewis44:30

    2. HSHarry Stebbings44:31

       Ca- can I ask you? I'm, uh, sorry, I am diving quickly, but they, they have more founders or former founders as team members within Rippling, I think, than any other company. There was a great study I saw r- a couple of months ago, whenever it was, that said about the amount of former founders who are now team members at Rippling. What do you think that does in terms of execution, culture, morale, how a company is built, to have so many former founders, like Matt from obviously Inkling?

    3. GLGeoff Lewis44:55

       Yep.

    4. HSHarry Stebbings44:56

       Um, what does that do to the company execution-wise, culture-wise, everything else?

    5. GLGeoff Lewis45:00

       It makes it a culture of people that have a chip off their shoulder and need the business to be massive in order to self-actualize. And that's what... And who know, who know things aren't easy. Who know the world... Who know there's not always a comfortable ecosystem and matrix to take care of you and make your life easy and beautiful. They know that the world is cruel. They know that the world is hard. And they still go for it anyways. That's the culture it imbues Rippling with, and that's the advantage Rippling has. That culture, that culture of being underestimated, of being faced with skeptics, saboteurs, doubters, detractors. Every great entrepreneur has that. And how to overcome that and channel it into winning over and over and over again. No other company is gonna have a culture like Rippling. And that's what makes it a compound startup in my mind.

20. 46:03 – 47:08

    Most under-appreciated aspect of Rippling

    1. GLGeoff Lewis46:03

       That culture is going to compound.

    2. HSHarry Stebbings46:05

       Final one for you. What do you think is the most underappreciated aspect of Rippling?

    3. GLGeoff Lewis46:11

       Well, there's a company answer, which I spoke about earlier. I think owning the employee graph, the potential you have to become the way SaaS gets distributed is a huge, could be just a huge incremental lift for the business. I mean, that could be massive. It could be AdWords for SaaS 10, 15 years from now. I think that's very underappreciated because it's not built yet fully, but we'll see. Very bullish on the prospects for that. I think back to what I said on Parker. This is a rare human who to wholly self-actualize, has to build one of the largest companies on the planet. And he has the ability to do it. I don't think people know how to underwrite that.

    4. HSHarry Stebbings46:51

       Jeff, listen, I always love our chats. I cannot thank you enough for going off on a tangent on the psychology side in the beginning, for advising me in the middle. This has been so much fun as always, and I can't thank you enough, my friend.

    5. GLGeoff Lewis47:03

       Pleasure. Thank you.

    6. HSHarry Stebbings47:05

       You are a star.

Episode duration: 47:08